Panama – Know Your Customer (KYC) Rules

 

 

Panama‘s strategic geographic location and status as a regional financial center make it an attractive jurisdiction for money launderers. Panama‘s success in establishing itself as a regional business and logistics hub, based on the success of its ports, airport and the Colon Free Zone – the second largest free trade zone in the world – have enhanced its attractiveness for organizations engaged in illicit financial activities.

Money laundering in Panama is believed to be primarily related to the laundering of the proceeds of drug trafficking, and the country sits along major drug trafficking routes. The work of launderers is facilitated by weaknesses in the regulatory framework, notably the existence of bearer share corporations, but more importantly by uneven enforcement of anti-money laundering measures and the weak judicial system, which is susceptible to corruption and favoritism.

After negotiating and signing 13 Double Taxation Treaties with OECD members, and ratifying the Tax Information Exchange Agreement with the United States in 2010, Panama achieved removal from the OECD‘s gray list of tax havens in July 2011.

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: NO
    • Domestic PEP: NO

Panama – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Panamanian Law:

    • Banks, savings cooperatives, savings and mortgage banks, and money exchanges
    • Investment houses and brokerage firms
    • Insurance and reinsurance companies
    • Fiduciaries
    • Casinos
    • Free trade zone companies
    • Finance companies
    • Real estate brokers
    • Lawyers

Panama – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 563 in 2010

Number of CTRs received and time frame: 495,546 in 2010

The following is a list of STR covered entities covered by Panamanian Law:

    • Banks, cooperatives, and money exchanges
    • Casinos
    • Fiduciaries
    • Insurance companies
    • Government entities focused on the lottery
    • Investment houses

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: Not available
Convictions: 22 in 2010

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Panama cooperates well with U.S. law enforcement agencies. However, the notable successes the Government of Panama (GOP) has had in interdicting flows of illegal drugs have not been matched by similar success in addressing money laundering concerns. The various government agencies tasked with addressing money laundering remain fractured and under-resourced, and communicate poorly with one another. Panama‘s financial intelligence unit, the UAF, in particular, lacks the resources to process and investigate, let alone enforce, reporting requirements on suspicious transactions. The judicial branch‘s capacity to successfully try and convict money launderers remains weak, and judges remain susceptible to corruption. Although the GOP took a step forward with the introduction of know-your-client legislation requiring lawyers to conduct due diligence into the beneficial owners of the companies they incorporate, the continued existence of bearer shares corporations remains a vulnerability of the anti-money laundering regulatory framework.

Panama, through its Customs Authority, is taking steps to reduce the use of Tocumen Airport as an artery for cash couriers to move cash into Panama. More targeted enforcement action, in collaboration with U.S. law enforcement agencies, has led to increased scrutiny of passengers and notable seizures of undeclared cash at the airport.

Customs also has been effective in disrupting trade-based money laundering through the partnership of the Panamanian and U.S. trade transparency units (TTU). Established in 2010 by U.S. Immigration and Customs Enforcement and Panama‘s Customs authority, the Panamanian TTU has had significant success. Despite these advances, Customs lacks sufficient resources to fulfill its mandate.

The Colon Free Trade Zone (CFZ) continues to be vulnerable to abuse by criminal groups through illicit financial activities, due primarily to insufficient enforcement of existing controls. The new electronic transaction recording information system, when fully implemented, will improve capacity to trace transactions. Bulk cash is relatively easily introduced into the country by declaring it is for use in the CFZ. A new resolution, published December 14, 2011, improves the AML/CFT framework in the CFZ. The resolution has 25 articles that supersede and include all the provisions of law 42 of 2000 and Decree JD-008 of 2008. It will enter into force 60 days after publication. Among the items addressed are the requirement to have a compliance officer in each company; implementation of preventative measures, supervision, inspection and sanctions; STR and CTR reporting; and know your customer policies.

During 2011, the GOP took steps to continue to improve the legislative framework governing anti-money laundering and financial sector transparency. In 2011, Panama passed legislation (Law 2 of 2011) requiring lawyers to know their clients, conduct due diligence on the beneficial ownership of corporations they establish and share that information with the authorities upon request. These steps have strengthened Panama‘s regulatory framework. Panama also is drafting new anti-money laundering legislation, which would strengthen the UAF‘s authority and increase the number of sectors required to report suspicious transactions.

If the GOP continues its efforts to improve its anti-money laundering legal framework, particularly eliminating bearer shares, criminalizing ―tipping off,‖ improving the strength of the prosecutor‘s office and the judicial system, and creating a more transparent financial network, money laundering will become more difficult within Panama‘s borders.